Question

Waterways Continuing Problem 06 a (Part 3)

The section of Waterways that produces controllers for the company provided the following information.

Sales in units for month of February		4,200
Variable manufacturing cost per unit		$10.00
Sales price per unit		$43.00
Fixed manufacturing overhead cost (per month for controllers)		$83,000
Variable selling and administrative expenses per unit		$2.90
Fixed selling and administrative expenses (per month for controllers)		$13,250

Using this information for the controllers, determine the contribution margin ratio, the degree of operating leverage, the break-even point in dollars, and the margin of safety ratio for Waterways Corporation on this product.

Contribution Margin Ratio (Round to 0 decimal places, e.g. 25%.)			%
Degree of Operating Leverage (Round to 2 decimal places, e.g. 5.25.)
Break-even Point in Dollars		$
Margin of Safety Ratio (Round to 1 decimal place, e.g. 5.2%.)			%

Answer 1

Correct Answer:

Contribution margin Ratio	70%
Degree of operating leverage	4.19
Break-even point in Dollars sales	$    1,37,500
Margin of safety Ratio	23.9%

Working:

		Per unit	4200 units
A	Sales Revenue	43	180600
	Less: Variable expense
	Variable Manufacturing cost	10
	Variable Selling and administrative expenses	2.9
B	Total variable expenses per unit	12.9	54180
C=A-B	Contribution margin	30.1	126420
D =C/A *100	Contribution margin Ratio	70%	70%

Sales Revenue		$    1,80,600
Less: Variable expense
Variable Manufacturing cost	$         42,000
Variable Selling and administrative expenses	$         12,180
Total variable expenses per unit		$       54,180
Contribution margin		$    1,26,420
Less: Fixed Expense
Fixed Manufacturing overhead cost	$         83,000
Fixed selling and administrative expense	$         13,250
Total Fixed Costs		$       96,250
Operating Income		$       30,170

A	Contribution margin	$      1,26,420
B	Operating Income	$         30,170
A/B	Degree of operating leverage	4.19

A	Total Fixed Costs	$         96,250
B	Contribution margin Ratio	70%
C =A/B	Break-even point in Dollars sales	$      1,37,500

A	sales revenue at 4200 units	180600
B	Sales revenue Break-even point	$      1,37,500
C=A-B	Margin of safety	$         43,100
D =C/A *100	Margin of safety Ratio	23.9%

End of Answer.

Thanks